(Reuters) - Pan American Silver Corp PAA.TO said on Monday it will buy Minefinders Corp Ltd MFL.TO for about C$1.5 billion ($1.48 billion), aiming to more than double production by 2015.
News of the friendly deal sent shares of Pan American skidding 10.5 percent to C$22.39 by early afternoon on the Toronto Stock Exchange as investors reacted adversely to the rich cash and share offer for Minefinders, which owns one producing mine in Mexico.
An expensive takeover of a healthy company with a producing asset is a departure for Pan American, which has made its name buying shuttered or distressed mines, and then reviving them.
Chief Executive Geoff Burns said during a conference call that it has become difficult to find discarded projects that still have valuable resources.
“Those opportunities aren’t there, at least not in anywhere that we’ve looked,” he said. “To us, it really has become about looking at assets where we can see additional value.”
“My view is that the Minefinder assets qualify,” he said, adding that the acquisition is in line with Pan American’s goal of becoming the world’s largest, low-cost primary producer of silver.
Vancouver-based Minefinders owns the Dolores mine in northern Mexico, along with numerous exploration properties. In 2011, the company produced about 3.6 million ounces of silver and 74,000 ounces of gold.
After the takeover, Pan American will have eight operating mines, with about half its total production coming from projects in Mexico. Mexico is the world’s top silver producer.
By the end of 2015, Pan American expects to boost annual production to more than 50 million ounces of silver from the 22.5 million ounces it has forecast for 2011.
Burns noted that Dolores, which has been in production for three years, is no longer a risk and that Minefinders also owns the promising La Victoria project in the southeast Mexican state of Chihuahua.
Pan American’s main pipeline to the future is still the massive Navidad project in Argentina, which is expected to produce about 20 million ounces of silver a year for the first five years of its life. However, the project has been delayed due to laws prohibiting open pit mining in Chubut province.
Earlier this month, Argentina’s mining secretary said he expected construction to start at the Navidad site within six months.
Vancouver-based Pan American operates mines in Mexico, Peru, Argentina and Bolivia.
Analysts applauded the offer of C$15.60 per share for Minefinders, which represents a premium of 36 percent to the company’s Friday closing price on the Toronto Stock Exchange.
“We view the proposed transaction positively, as the offer represents a significant and immediate premium to Minefinders’ shareholders,” said Desjardins Securities analyst Brian Christie in a note to clients.
Shares of Minefinders were up 22 percent at C$14.03 at midday on Monday, below the full cash offer price.
Under the deal, Minefinders shareholders can opt to receive either 0.55 shares of Pan American and C$1.84 in cash, or 0.6235 shares of Pan American or C$15.60 in cash for each share held.
Pan American expects to complete the deal by the end of March. It said that after the deal closes, it will review some of its smaller, non-core assets, which suggests that some could be put up for sale.
CIBC World Markets was Pan American’s financial adviser, while BMO Capital Markets advised Minefinders.
Reporting by Bhaswati Mukhopadhyay in Bangalore and Julie Gordon in Toronto; editing by Rob Wilson and Peter Galloway